PROJECTState and Local Backgrounders

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  • Health and Hospital Expenditures

    Spending on health and hospitals includes spending on community and public health programs, government-owned hospitals, and government payments to privately owned hospitals.1 

    Census counts most state and local spending on Medicaid as public welfare, but it includes some Medicaid spending under the health and hospital expenditure category.

    How much do state and local governments spend on health and hospitals?

    In 2021, state and local governments spent $377 billion on health and hospitals, or 10 percent of direct general spending.2 As a share of direct general state and local spending, health and hospitals was the third-largest expenditure in 2021.

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    In 2021, 63 percent of health and hospital spending went to hospital services and 37 percent went to other health programs.

    Hospital services include the operation of university medical schools, state-owned hospitals for people with mental illness or disabilities, public children’s hospitals, and payments to private hospitals for public services. Census counts payments to public providers, such as Medicaid, as public welfare expenditures, but counts Medicaid payments to hospitals as health and hospital expenditures. The Medicaid and CHIP Payment Access Commission estimates that payments to hospitals accounted for 10 percent of total Medicaid spending.

    Health program expenditures include services such as mental health and substance abuse programs, county health department inspections, water and air quality regulation, and health inspections.

    In 2021, 97 percent of health and hospital expenditures were for operational costs, such as public health administration, community health programs, public hospital operations, and regulatory services. The remaining 3 percent went to capital outlays such as hospital construction.

    How does state spending differ from local spending and what does the federal government contribute?

    Spending on health and hospitals is split roughly evenly between state and local governments. In 2021, states provided 47 percent of health and hospital spending while local governments provided 53 percent.

    State and local governments also spent the same share of their respective budgets (10 percent) directly on health and hospitals in 2021. Among levels of local governments in 2017 (the most recent year that we have data for these levels of government), spending on health and hospitals accounted for the largest share of county budgets (21 percent) and special district budgets (36 percent). Special districts are typically dedicated to one or a few services, so the relatively high percentage of national special district spending on health and hospitals reflects that a large number of special districts across the country are solely dedicated to health and hospital services.

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    However, the level of government directly spending on health and hospital expenditures varies greatly across states. In Indiana, for example, only 16 percent of direct health and hospital spending occurred at the state level in 2021. In contrast, in Vermont, the state government was responsible for 98 percent of total direct health and hospital spending.

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    In 2021, fully half of state and local health and hospital expenditures ($188 billion) were funded by the federal government. The federal government's share of health and hospital spending was significantly inflated that year because of legislation enacted in response to the COVID-19 pandemic. In 2020, the federal government's share was 34 percent and in 2019 it was 9 percent. Specifically, the CARES Act, passed in March 2020, provided over $170 billion to compensate hospitals and health care providers for unanticipated costs during the pandemic. 

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    How much do hospital charges contribute to health and hospital spending?

    The Census data on health and hospital expenditures include revenue from both governments and charges related to health and hospitals, such as when a public hospital charges patients, private insurance companies, and public insurance programs (such as Medicare) for care or other services (e.g., cafeteria food purchases) plus services such as the care and treatment of the handicapped.

    The share of state and local health and hospital spending from charges has grown considerably over the past 40-plus years. In 1977, charges accounted for 37 percent of state and local health and hospital expenditures. But since 2011, charges have accounted for a majority of this funding. Charges were 53 percent of state and local health and hospital expenditures in 2021.

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    How has health and hospital spending changed over time?

    In 2021 inflation-adjusted dollars, state and local government spending on health and hospitals increased from $103 billion in 1977 to $377 billion in 2021, an increase of 266 percent. Much of this spending increase was driven by the rising costs of health care and the related increase in charges as a share of state and local spending on health and hospitals. Notably, the growth in health and hospital expenditures roughly tracked the growth for non-health and hospital expenditures until 2006, but since then the former has seen far more spending growth than the latter.

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    For the same reason, public welfare expenditures had the fasted growth (458 percent) from 1977 to 2021 because much of its growth was driven by higher Medicaid spending. However, Medicaid spending, which Census counts as either public welfare or health and hospital spending, grew in large part because of increased federal spending on the program. (For more information on spending growth see our state and local expenditures page.)

    Still, despite the spending growth, health and hospital spending as a share of state and local direct general expenditures has not changed significantly over the period. In 1977, 8 percent of state and local spending went to health and hospitals compared with 10 percent in 2021.

    How and why does spending differ across states?

    Across the US, state and local governments spent $1,136per capita on health and hospitals in 2021. Wyoming spent the most on health and hospitals at $3,404 per capita, followed by the District of Columbia ($2,449), South Carolina ($1,915), Alabama ($1,813), and Kansas ($1,768). New Hampshire spent the least per capita at $211, followed by Arizona ($343), Maine ($358), South Dakota ($364), and West Virginia ($532).

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    Data: View and download each state's per capita spending by spending category

    Health and hospital spending may vary by state for many reasons, including higher utilization of health services or hospital readmission rates among some populations; higher regional health care costs; the number of government-owned hospital beds; or other factors that may require additional investment in public health services to address, such as pollution or mental health and substance abuse problems.

    Interactive Data Tools

    State and Local Finance Data: Exploring the Census of Governments

    State Fiscal Briefs

    What everyone should know about their state’s budget

    Further Reading

    3 .7 Million People Would Gain Health Coverage in 2023 If the Remaining 12 States Were to Expand Medicaid Eligibility
    Matthew Buettgens and Urmi Ramchandani (2022)

    Health of the States: How U.S. States Compare in Health Status and the Factors that Shape Health
    Steven H. Woolf, Laudan Y. Aron, Derek Chapman, Lisa Dubay, Emily Zimmerman, Lauren C. Snellings, Lindsey Hall, Amber D. Haley, Nikhil Holla, Christopher Lowenstein, and Timothy A. Waidmann (2016)

    Assessing Fiscal Capacities of States: A Representative Revenue System–Representative Expenditure System Approach, Fiscal Year 2012
    Tracy Gordon, Richard Auxier, and John Iselin (2016)

    Notes
    1 Data are from census expenditure categories E32, E36, F32, F36, G32, G36, K32, and K36.

    2 Direct general spending refers to all direct spending (or spending excluding transfers to other governments) except spending specially enumerated as utility, liquor store, employee-retirement, or insurance trust. Unless otherwise noted, all data are from the US Census Bureau Annual Survey of State and Local Government Finances, 1977-2020 (compiled by the Urban Institute via State and Local Finance Data: Exploring the Census of Governments; accessed March 29, 2024), https://state-local-finance-data.taxpolicycenter.org. The census recognizes five types of local government in addition to state government: counties, municipalities, townships, special districts (e.g., a water and sewer authority), and school districts. All dates in sections about expenditures reference the fiscal year unless explicitly stated otherwise.

    Research Areas State and local finance
    Policy Centers Urban-Brookings Tax Policy Center